The Inflation Reduction Act (IRA) Turns Two as We Face an Election

Here’s What We’ve Learned, and Is It at Risk?

By now, the industry is past the initial cheerleading and “what does the Inflation Reduction Act (IRA) mean for my company?” exploration that marked year one. As we turn the corner of two years of IRA implementation and face the reality that significant change might be on the horizon, real project development and execution are well underway. While progress has been promising, we are at an interesting juncture for energy transition and the many factors that shape its journey in the United States. The path is clear: the industry needs to pick up the pace to remain on track with the decarbonization goals of the Paris Agreement, which calls for at least 60 GW of clean electricity capacity to be added in 2024. But the larger story remains to be written: what will the legacy of the IRA be, and is it at risk in the coming weeks?

The federal government has long been influential to the energy sector, providing support, availing resources, and offering incentives to build infrastructure, develop workforce, and bridge the gaps needed to ensure a secure and reliable grid. But as energy transition accelerates, that relationship can sometimes become strained and tested. Today’s environment provides the industry with a unique opportunity to avail itself to resources provided by the Inflation Reduction Act (IRA) and balance the calls for quality, dispatchable, and low-carbon electricity with the quantity of 24/7 demand coming from onshoring manufacturing and the proliferation of AI-focused data centers. We need strategic partnerships, various solutions, and regulatory certainty to achieve the IRA’s intent to tackle the trilemma of affordable, reliable, and clean power.

So far, power providers have experimented with different ways to collaborate and unlock new ways of working:

• •    Supplier partnerships can unlock new solutions or applications to address challenges in real time. For example, hydrogen and carbon capture can require new alloys and materials to effectively contain the gases. Close partnership with suppliers can help power providers unlock outside-the-box solutions or uses to lower costs and raise efficiency.
• •    One-to-one partnerships enable more streamlined action. One trend emerging in the past few years is “zippering” – when individuals connect directly with their counterparts in other companies to create deeper collaboration across engineering, operations, sales, government relations, and other teams. Interpersonal partnerships enable people to share insights, resources, and expertise in real time, benefiting everyone involved.
• •    Public-private collaboration ensures that the DOE and the agencies implementing the Inflation Reduction Act are leveraging the expertise and real-world experience of companies to realize the law’s full potential and help more projects reach completion. The IRA’s provisions and guidance should factor in their input, such as realistic timelines for the various decarbonization technologies.  

Breaking down silos – across the industry, through the supply chain, and among individuals – enables power providers to do more than they could accomplish alone. In the next phase of the energy transition, companies should consider where they can bring in partners to advance their efforts even further.

Different solutions can serve the same goal

There’s no one decarbonization solution that will fit every region; each has a different mix of resources, land accessibility, available companies, regulatory considerations, and local communities that power providers should be attuned to. With this understanding, the Inflation Reduction Act was intentionally designed to support a variety of technologies with the acceptance that it will take some combination of all of them to decarbonize, and that each will have a different timeline to scale up. 

Some areas have a unique ability to generate and store solar power, some can optimize wind power or battery storage, and others are suitable for hosting a hydrogen hub – yet the types of deployment for the DOE’s hubs vary depending on a region’s geography. The past two years have marked significant progress. In 2023, there was a record 32.3 GW of zero-carbon electricity generation and storage capacity added to the grid, up 32% from 2022 and topping the previous high of 31.6 GW in 2021. Most of the new capacity was solar PV (18.4 GW), followed by battery storage (6.4 GW) and wind (6.3 GW.) 

While promising, that progress still needs to accelerate. The International Energy Agency forecasts global electricity demand to grow about 4% a year in 2024-2025. Solar PV alone is expected to meet half of that growth, with solar and wind combined meeting as much as three-quarters. But as the demand continues to increase, power providers will be challenged to meet it while also maintaining their decarbonization efforts. 

The numbers show that for every $1 the government invested through the IRA, the private sector has spent $5.47. It will take this collective effort, deployed across multiple technologies, to eventually fully decarbonize the power sector. Companies should look at how they can continue to diversify their offerings and investments, knowing that all these solutions contribute to decarbonization but the timing of their implementation and impact will vary.

Incremental progress adds up

Renewable energy is expected to supply 35% of the global electricity supply forecast in 2025, up from 30% in 2023. In 2025, the amount of electricity generated by renewables worldwide is forecasted to eclipse the amount generated by coal for the first time. 

It’s possible that today’s high interest rates could curtail investment in renewables and the current momentum. Either way, the energy transition won’t happen overnight. Just as phone providers didn’t leap from land lines to the latest smartphone in one swift upgrade, clean power technology is developed in incremental stages – improving with each iteration and infrastructure upgrade.

Rather than see decarbonization as a singular, all-or-nothing goal, the industry has embraced the value of incremental progress and recognized some notable milestones:

•    There are now nearly 9,000 public, fast-charging electric vehicle (EV) charging stations in the U.S., a number which has increased by 9% in just the last three months. Some projections model that EV charging stations could outnumber gas stations in the U.S. in eight years or less.
•    Hydrogen hubs are turning from concept to reality. Mitsubishi Power delivered the first shipment of electrolyzers to the Advanced Clean Energy Storage Hub in fall of 2023, laying the groundwork for operations to start in 2025. The hub will initially be capable of converting 220 MW of renewable energy into almost 110 tons per day of green hydrogen, which will then be stored in two massive salt caverns capable of holding more than 300 GWh of dispatchable clean energy.  A single cavern will have the capacity to store the equivalent of the entire state of California’s monthly curtailed energy.
•    Many power providers are converting existing gas turbine combined cycle plants to 30% hydrogen co-firing, setting a course to run on 100% hydrogen in the future. Mitsubishi Power works with providers to develop customized, phased modification plans that cover combustors, fuel systems, control systems, and other elements of the existing GTCC plant. All of this is backed by more than 3.5 million hours of operations on fuels containing hydrogen since the 1970s.

The work that remains is to educate the public (policy and law makers included) on the energy trilemma: the balancing act required to decarbonize operations while maintaining energy reliability and affordability. It’s the key to serving communities and industries where outages would have devastating consequences. Power providers can identify additional opportunities to bring the public into the process by communicating about the smaller milestones or the status of projects in the works. The more companies can highlight their progress – even if it takes time to get it right – the more their communities can understand, trust, and support these efforts.

Investing in a shared future

A critical mindset shift for power providers is transitioning from theoretical to operational. In the IRA’s first two years, many providers future-proofed their business and enabled customers to do the same. The law has changed companies’ orientation, compelling them to look into the future and anticipate how to solve the problems of tomorrow.

While there are many unknowns over the next few weeks, let alone the coming years, one thing is clear: The future is decarbonization, with more technologies deployed at scale to help meet rising power demand.

The decisions energy leaders make now are what will shape the next several decades in the energy sector. The energy industry doesn’t think in quarters, electoral terms,  or even usually in years – it thinks in decades. The geology that so often influences what we are capable of doing thinks in eons. The entire obligation of our work is to set up a secure and reliable grid for the next generation of leaders, providing families and regular people with the right to live out their lives, pursue their interests, and inspire others to do the same.